Information and Consulting

Friday, January 25, 2013

Years ago, in the Neolithic 1980s, I was job captain on the
planning of a number of then high tech campuses for some of the up-and-coming
companies of the day, Sun Microsystems, Rolm, HP and maybe even an IBM. I also
did some master planning of campuses that were incubator developments that
would later become the Apples and Ciscos. I worked in Scotland, Texas,
Colorado, and of course the mothership of technocracies, California.

What was common was not just a cohesive master plan with
hundreds of thousands of square feet, but a land use plan with lakes and
gymnasiums, restaurants/cafeterias, and other cool stuff. The goal was not
unlike a college campus – thus the high-tech business campus began. These ancestors
of the 21st century tech campus, especially in Silicon valley, have now been
dissolved and reimagined as the technocratic social media campus and other
multi-use business parks (old school term) we see today. But what is the future
for these companies and their insatiable need for space?

An article that crossed my desk GO HERE from the San Francisco Bay Area real estate
news company The Registry, got me thinking. They dug
into the past reasons and the murky futures of the high tech campus, albeit
from a totally different perspective – the high-density, vertical, downtown
mega building in the mega city and its future as “THE” place for this type of campus
growth. I wondered what could be expected from these
non-suburban company GHQs? Why downtown San Francisco, why New York, why not?

Most tech campuses are still suburban or at least within
the urban ring, they are near airports and freeways – workers, even those on
the web, still needed to show-up to work. They are near other tech campuses
(potential employees), near universities (highly educated – low-pay employees),
and less expensive housing (especially now), think Austin, Texas and Raleigh,
North Carolina. Thevision now is an uber-technocrat in SOHO, New York
or SOMO, San Francisco with everything they need just a subway or taxi drive away. That would have never even passed as a shadow through the mind of a
business owner back in the day. Then, as even now,home base was near where
the owner/founder lived, not where a bunch of black jeaned techies with moussed
hair, live. A problem that Silicon Valley has today is that all the cool kids want
to live in San Francisco and work in Mountain View, or have a loft in New York City and not work in New
Jersey. So the “factory” is moving - a boon to the
landlords of the once old and cheap (not anymore) warehouse space in the south
of Market area of San Francisco and the Bowery of New York. These are the metro-technicals of the future.

With this comes all the usual problems that retrofits
have: severe lack of the essentials such as power, fiber optics, water, sewerage,
parking and transit. Cities are bribing these companies to come and rebuild
their old infrastructures for deferrals of taxes and fees. Suburban communities
would kill for some of these companies, unfortunately the employees would
rather be found dead than use the window at a drive-up Starbucks. Such is the life of the
urban uber-techie; which black tee shirt to wear with which black jeans? but I
generalize and I'm old. For the better cities these can be home runs, ask Boston and even
Chicago.

This too will change, and soon, and morph into
something different. Is face to face necessary in a high tech world? We are instantaneous and everywhere, so why a
campus at all? A million square feet of old creaky wood flooring and spalling
concrete columns is urban-chic, but you still need to put people in it. So a longer
term vision may be in order.

The billions being spent by Apple for their new
“suburban” campus is, maybe, up in the air (my speculation), especially when you lose more than 1/3rd of your market cap in less than six months. So we will wait and see.

Back in the day, when these were developer driven
campuses, the first question was “What will it cost to retrofit this complex
when the lease is up or the company has been bought out. What will I do with
this dinosaur then?”

The mall, in Elk Grove, California, was begun more than
10 years ago, went through a long and arduous approval process (in California
they are ALL arduous), then law suits. A fairly classic and uninteresting
design was begun by General Growth Properties, then when the economy turn
south, taking General Growth into bankruptcy, it was stopped. Now it sits,
south of Sacramento, fenced in and a derelict, in the west boomtowns became
ghost towns – now we have ghost malls. In the grey fog of the Central Valley of
California it looks forlorn and unwanted.

In spite of its abandonment (for all intents), the
community sees an opportunity, or at least that was my take from the article.
There are a couple of points to be made, the south side of Sacramento needs
retail, it grew fast and the last thing of substance to arrive is usually
quality retail. The residents have to go north to Sacramento and Roseville to
really find quality, and south to a marginal center in Stockton (and that’s a
whole other discussion itself).

The Patch (the news outlet that posted the story) is an
interesting business in itself that’s worth looking into. Owned by AOL, it
operates some 850 local and hyperlocal news websites across the country. Their
goal is to provide local information, online. This is a direct result of the
loss and collapse of the small town (and large) newspaper industry. Its future is
uncertain – now back to the story.

The Patch suggested a poll of the Elk Groveiers. If you
had a choice, what do you think of these?

Casino

Agriculture
College

Solar
Energy Field

Outlet
Mall

State
Prison

Soccer
Arena

Branch
Campus of UC Davis/Sac State/Drexel

Shopping
Mall (Large department stores

Air
Soft Park

Go
Kart Track

Scandia
/ Raging Waters / Family Fun

Aquatics
Center

What do you do with a derelict mall, even if the builder
wanted to give it away? Development is not a zero sum game, costs have to be
recovered, management and maintenance costs are very high, and the city needs
revenue, not a drain. And it would be nice if there were jobs, permanent jobs.

I can easily nix the aquatics center, water park, go kart
and air soft park, and soccer arena – their costs are high, they can only be
open during the summer (mostly), and they produce few permanent jobs (ask
Stockton how their venture into arenas went – it helped to bankrupt the town).
Branch campuses take years and years to develop – even if the state had money,
but it’s almost as derelict as the mall is itself. Solar energy field – warm
and fuzzy but no jobs and in winter, weeks with no sun. The state prison does
produce jobs and the money flows back through the community, but the state again
has no money to take care of what they have now let alone another prison. That
leaves the casino, outlet mall, and shopping mall – back where we started.

There are hundreds of villages and small cities faced
with this same challenge: How do we move forward and entice (bribe) businesses
back into our city, county, and state? What can be offered? Today land is
relatively cheap, so free land is not an option that works. Customers and an
educated work force are critical to the decision makers. They have a business
to run, make sales, make profits – we seemed to have forgotten this.

Here are some off-the-cuff ideas: reduce impact fees to
almost zero, reduce property taxes for a set period of time, wave mitigation
fees, and eliminate social obligations in conditions of approval (extractions
for community needs such as parks, roads, and public health). The goal is help
support running a business that adds to the community with jobs, wages, and
long term tax revenues. The idea of a new downtown (found here) is interesting –
in the days of wine and roses maybe, today impossible.

Cities will have to compete for businesses and encourage
them to return, ask once complacent states like Michigan and California how
they are doing.

Friday, January 11, 2013

The Wall Street Journal posted a delightful article (for
me), about Los Angeleans and their belief in the world as their own entitlement
oyster. It seems that Los Angeles International Airport (LAX) has literally
begun to pull the plug on free parking for electric cars. Up until very
recently you could park your Leafy-tesla-volter in one of their charging
stations for FREE for 30 days. The
whole article is simply about very rich people (you have to be to afford one of
these cars) who feel entitled to all the joys of free parking, free access to
HOV lanes, and subsidies from the government. What the problem is now is that
there is not enough free parking,
well welcome to the real world. CLICK HERE

Ada Louise
Huxtable (March 21, 1921 – January 7, 2013)

When I was at Michigan State University so many decades
ago, we were introduced to Ms. Huxtable’s critical writings on the great
architects of the time, Mies van der Rohe, Frank Lloyd Wright, Minoru Yamasaki,
and many others. She, along with other critics of the time, helped to form our opinions
and beliefs about architecture and urban environments. Her columns in the New York Times left little in the new
architecture unchallenged. For some architects she was like their mother
looking over their shoulder, always demanding the best and pointing out the
insufficient. She and her pen will be missed. CLICK HERE

Can Housing Get Us
Out of Our Mess?

Housing has never been this affordable. Prices have
dropped significantly over the past four years (for those not paying
attention), mortgage rates are at historic lows, and there is increasing
pressure from rising rents. The result is that ownership of single family housing
is again on the rise. Contrary to all the doom-and-gloomers who predicted the
end of ownership housing as we knew it, it’s making its way back. Good article here
in the Washington Post from earlier this week. CLICK HERE

The Premature Declaration
of Death

Way back in the early 1990s I was told that master
planned communities (MPCs) were dead, too expensive, environmental burdens were
too much, infrastructure costs pushed profitability over the edge of reason –
especially in California. Then they arose from the grave, then in 2007 fell
back into the hole and dirt was being thrown on the body, especially in
California. In this post by RCLCO Advisory, they list the top-selling master
planned communities across the United States. While the total numbers are less
than 2% of the total for new homes built last year, it still shows a trend.
This trend is that there are bright spots across the country for MPCs. Of the
top 20 communities, 9 are in Texas (Why is it always Texas?), 5 in Florida (the #1 is the huge The
Villages senior community), 3 in Nevada (yes, the worst housing market in the U.S.)
and the remaining are in Washington D.C., Colorado, and one in California, the
huge Irvine Ranch now in its 53rd year (so hardly a new MPC). So nothing in
California, totally understandable and predictable – and will be for a long
time. CLICK HERE

Friday, January 4, 2013

My finger is in the air and it says that housing is
improving, but from which way does the wind blow? To listen to the news outlets
and conduits of information, housing is hot in San Francisco, (mostly rental),
not so hot in Sonoma County (single family), hot enough to set a fracking well
on fire in North Dakota, and reprocessing foreclosures is hot in Chicago, HEREand existing homes sales are up – not a lot, but up. HERE

So what’s the problem?

Right now the two hottest issues in housing are
apartments and foreclosure rentals. Apartments, especially in growth areas such
as Washington D.C., San Francisco, and Silicon Valley are just plain nuts. Rents
are climbing exponentially, they are now rising faster than compounded
interest. To even quote numbers would be foolish; tomorrow they would be out of
date. Supply and demand and the trends will continue until, well, until they don’t.
There’s a bubble brewing here and when it blows it might be messy for the banks
and backers. My guess is the builders know this and are waiting for the right
moment to slow things down. Then again, I have before believed that builders
are smarter than the average bear. Watch your backs here.

Rental foreclosures are just holding pens, like the ones
in a stockyard. Lots of capital chasing empty houses and Fed backed short sales
and escapes in the night. And like stockyards, these pens are holding those
unfortunates waiting to be slaughtered; too many chasing too few. I wouldn’t be
surprised that some early foreclosure buyers are packaging their collections and
reselling them (at a higher price of course). Does that sound familiar? This is
an area for foolish money and dreamy minds. It is not unlike the trend back in
2004-2006 where private groups pooled their capital and bought single family
homes – thus driving up the prices. All hoping for long term returns in rent
and eventual resale. Most of these ‘hopeful retirees’ had to go back to work,
we all know that story. So big caution here as well.

I called out the public merchant builders almost two
years ago to look at the fracking world of the upper Midwest and Pennsylvania.
There would be big opportunities here for single family homes and maybe even
rentals. Time has proven me right, but from what I see these public builders
are staying away. This may be good for the locals but terrible for new immigrants
to the state and the work force. My guess: North Dakota isn’t ‘cool’ enough for
builders. Too bad, not only is there gold underground but on the land above as
well.

The next few years will be very interesting when it comes
to for sale single family homes. The foreclosures will shake out, rentals will stabilize,
and then single family homes will be back. We will grow another 35 million
people in America by 2050, like it or not. That is one million homes a year,
all things considered. We are currently thrilled with the reports of 377,000
new home sales in 2012. What does this tell you? We are falling behind. Two
things will happen, this will change and new home prices will continue to rise –
again. This will also drag along existing homes prices, especially in the
better neighborhoods. If we can’t keep up, I can smell a bubble, again.

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About Me

Greg was born in 1949 in Traverse City, Michigan. Raised near Chicago he moved to California in 1971. The son of a journalist and entrepreneur, Greg has never forgotten his roots; his non-fiction work has focused on the Midwest region. Californian by choice, Mr. Randall makes his home in Walnut Creek, California with his wife, constant companion, and business partner. His preferred fiction genre is mystery/thrillers and historically based novels.